LONDON — Britain should look at a so-called off-the-shelf option
for trade, such as staying in the European Economic Area, as it
transitions out of the European Union, analysts at banking giant
HSBC said.

"Given that time is short and that the task is fiendishly
complex, an off-the-shelf solution has appeal, in our view – even
if only for the transitional period. One possibility could be to
remain in the European Economic Area (EEA), although this may be
politically difficult," the team write in their note, titled
"Ambition and Transition."

Here's the rationale behind that possibility, put forward by
HSBC's team (emphasis ours)

The UK is already a member of the EEA. And, the EEA provides a
framework for open and stable trade relations between EU
countries and Norway, Iceland, and Liechtenstein. It also ensures
a degree of regulatory alignment (e.g., Norway has implemented in
its domestic law and regulation about 75% of the EU legal
requirements affecting the EEA operation). This would
help to limit some of the trade policy risks of Brexit.

Moreover, as the EEA is an existing agreement, many businesses
and government officials are familiar with its operation.
This would help to minimise the increase in complexity
that needs to be managed. Of course, the fact that this
solution would require continued free movement of labour between
the UK and other EEA members makes it politically difficult.

Theresa May and her key Brexit lieutenants have consistently and
continually said that the UK will not remain within the European
Single Market — a condition of EEA membership. Therefore, to do
so would require a huge u-turn from the government.

May's slender parliamentary majority means only a handful of
hardline Brexiteers would need to rebel against May on the issue
to cause a disastrous government collapse, something that is very
clearly an undesirable outcome for May, and the wider UK.

However, if May could manage to navigate the political hurdles of
staying in the EEA, it could be among the best options for the
UK's economy going forward.

Another option, HSBC notes, is for the UK to increase the use of
so-called Free Trade Zones (FTZs) to boost trade.

"These zones could be developed as areas outside of the UK
customs regime, although remaining subject to appropriate UK
standards and regulations (e.g., safety, health, worker rights),"
HSBC writes.

"By minimising the imposition of UK trade requirements, an FTZ
would enable businesses to trade more freely with partners in the
EU and beyond."

HSBC's commentary comes in the week that the government confirmed
it wants to negotiate a transitional customs union deal with the
European Union in order to prevent cross-border business coming
to a standstill after Brexit.

After the news was
briefed to press on Tuesday morning, the Department for
Exiting the EU (DExEU) published its official plan to leave the
customs union in March 2019 and negotiate a totally "new" customs
relationship with the EU, which would "minimise disruption" and
be as "frictionless" as possible.

The British side hopes the EU will agree to a bespoke,
time-limited customs arrangement, which will protect the UK
economy from a "cliff-edge" Brexit and allow businesses to carry
on as normal during an interim period, according to the position
paper, which you can read in
full here.

"The proposed model, which would mean close association with the
EU Customs union for a time-limited period, would ensure that UK
businesses only have to adjust once to a new customs
relationship. This would minimise disruption and offer business a
smooth and orderly transition," DExEU said in a press release.

May and her Cabinet want to retain as many benefits of customs
union membership as possible without being part of it — possibly
via a "temporary customs union." Britain will go into talks
pursuing "the freest and most frictionless possible trade in
goods between the UK and the EU," the paper says.